9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (2) TMI 154 - AT - Income TaxCharacterization of Profile of assessee - Whether the assessee is KPO or software developer? - as submitted that the TPO has merely rejected the contention of the assessee that it is SDS and not KPO for that AO noted that the Arm s length price of the assessee was within the range and no adverse inference could be drawn in respect to the transaction HELD THAT - Undoubtedly TPO / DRP in the present case have not decided the issue about profile of assessee i.e. KPO or software developer further both have not given any reasons as to why the services rendered by the assessee would fall under the category of KPO and not under software developer services. In the light of the non-availability of the reasons for treating the assessee as KPO by TPO / DRP we are of the considered opinion that the finding given by the DRP/TPO will not be as binding and issue of whether the assessee is KPO or software developer is left open to be decided based on the facts and circumstances arising in the subsequent year. Therefore Ground No. 2 is allowed for statistical purposes. Addition on account of corporate guarantee fee in respect of guarantee by the assessee in favour of AE - TPO confirming the rate of guarantee fee of 1.90% based on the rates charged by the banks to its customers as against 0.53% charged by the assessee to its AEs - HELD THAT - Interest of corporate guarantee or the charges of corporate guarantee is required to computed on the basis of actual period instead of one year as the actual periods were available in the form of chart with the Ld. AO / TPO. Therefore we are of the considered opinion that the TPO / DRP are required to restrict the charging of the corporate guarantee charges for the actual period as against one year. We issue the direction to TPO/AO to restrict the charging of the corporate guarantee only for the period for which it was issued. The TPO is directed to recompute the corporate guarantee charges for actual period only. Computation of rate the corporate guarantee charges - If we look into the document and the show-cause notice issued by the TPO then it is clear that the ALP of interest as applied for ECB loan was computed at 1.67%. Whether the ALP computed for external commercial borrowing @1.67% can be juxtapose or applied to the corporate guarantee @1.9% ? - In our view the answer is no and this Tribunal while deciding the issue in the case of Hetero Labs Limited 2024 (5) TMI 1108 - ITAT HYDERABAD as relied upon by the assessee held that the rate of interest required to be applied is 0.53% and not 1.9% as relied upon another case of Mylon Laboratories Ltd 2015 (12) TMI 95 - ITAT HYDERABAD and held that 0.5% is required to be applied. Thus we direct the TPO to compute the charges at 0.53% as corporate guarantee charges. Whether the credit rating of the AE of the assessee was substantially low and at what rate the interest would have been borrowed by it or at what rate the bank would issue the corporate guarantee in its favour ? - In our considered opinion that the ECB rate is already determined by the TPO at 1.67% then in our considered opinion corporate guarantee cannot be 1.67% it is to be substantially less therefore we are of the considered opinion that the view taken in the case of Hetero Labs Limited 2024 (5) TMI 1108 - ITAT HYDERABAD whereby the corporate guarantee charge has been restricted to 0.53% was appropriate and in accordance with law. Accordingly we allow this ground raised by the assessee. Letter of comfort given by the assessee to its AE is international transaction or not? - International transaction is required to be benchmarked at the rate determined by the TPO @1.9% or at any other rate - HELD THAT - If letter of comfort or the letter of support is given as the security as per loan agreement then letter of comfort / letter of support would partake the character of letter of security/guarantee and in other words it would amount to corporate guarantee. We are of the considered view that the letter of comfort given by the assessee to the lender was a financial instrument equivalent to letter of guarantee and therefore required to be benchmarked accordingly. In the present case the rate of interest payable on the borrowings i.e. ECB borrowing was @ 1.67% and the rate of interest of corporate guarantee held by us @0.53%. Therefore in our considered opinion the same rate as held by us for corporate guarantee is required to be applied for benchmarking the letter of comfort. Accordingly we direct TPO/AO to apply 0.53% for benchmarking letter of comfort . We are of the opinion that the order of the TPO is required to be modified and accordingly we held that the charges for letter of support / letter of comfort is required to be computed @0.53%.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment involved the following:
ISSUE-WISE DETAILED ANALYSIS Characterization of Services as KPO (Ground No. 2) The Tribunal noted that the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) had not provided adequate reasoning for classifying the assessee's services as KPO rather than SDS. The Tribunal emphasized that the lack of detailed reasoning would not bind the assessee in subsequent years, leaving the issue open for future determination. The Tribunal allowed this ground for statistical purposes, indicating that the matter requires further examination based on detailed facts and circumstances. Corporate Guarantee Fees (Grounds No. 3 & 4) Regarding the addition of Rs. 8,13,50,422/- for corporate guarantee fees, the Tribunal examined the TPO's benchmarking approach, which relied on rates charged by banks. The Tribunal noted that the TPO used a median rate of 1.90% based on bank data, while the assessee argued for a rate of 0.53% based on previous decisions in its favor. The Tribunal found that the TPO's approach of using bank rates was inappropriate as it did not account for the specific circumstances and risks associated with corporate guarantees within a corporate group. The Tribunal directed that the corporate guarantee fee should be computed at 0.53%, aligning with precedents where similar rates were applied. Letter of Comfort as International Transaction (Grounds No. 5 & 6) The Tribunal considered whether the letter of comfort issued by the assessee constituted an international transaction. The TPO treated the letter of comfort as a corporate guarantee, subjecting it to transfer pricing adjustments. The Tribunal reviewed various judicial precedents and concluded that a letter of comfort, which does not impose a legally binding obligation on the issuer, should not be equated with a corporate guarantee. The Tribunal held that the letter of comfort did not constitute an international transaction under transfer pricing provisions, thereby rejecting the TPO's adjustment. Benchmarking of Corporate Guarantee and Letter of Comfort Fees (Grounds No. 7 & 8) The Tribunal addressed the TPO's methodology in benchmarking corporate guarantee and letter of comfort fees. The Tribunal criticized the reliance on bank guarantee rates, which do not reflect the specific context of intra-group corporate guarantees. The Tribunal reiterated that the appropriate rate for corporate guarantees should be 0.53%, as consistently applied in similar cases. The Tribunal also directed that the letter of comfort should be benchmarked at the same rate, given its characterization as a non-binding assurance rather than a formal guarantee. SIGNIFICANT HOLDINGS The Tribunal established several core principles and determinations:
In conclusion, the appeal was partly allowed, with directions to adjust the corporate guarantee and letter of comfort fees according to the Tribunal's findings, ensuring alignment with established precedents and the specific nature of the transactions involved.
|
